The Reserve Bank of India is scheduled to announce the outcome of fifth bi-monthly Monetary Policy Committee (MPC) meeting for financial year 2025-26 today. The three-day meet will be flying the by RBI Governor Sanjay Malhotra and is going to end tomorrow with an announcement that will have ripple-effects from your Load EMIs to overall health of the Indian economy.
The Big Question: Cut or Hold?
The central bank’s announcement will primarily dwell on the Repo Rate: the rate of interest at which the RBI lends money to banks. RBI has already cut Repo Rate by 100 bps (cumulatively), three times since February’25 which stands at current rate of 5.50%.
The Right Answer: A Cut (25 basis points)
A part of the market expects another 25-bps reduction in Rep Rate to 5.25%. They are based on a sharp fall in retail inflation.
Sub-Target Inflation: With CPI inflation much below the 4% – 2% target range set by RBI, plenty of room exists to deliver a growth-supportive step. Record-low inflation, largely on account of subdued food and fuel prices as well as the recent rate rationalisation under GST, is indicative that economy isn’t overheating.
Lift to Growth: A rate cut would reduce the cost of borrowing for banks, and that should be passed on to consumers and businesses in the form of cheaper loans (home, auto, personal). It would provide a welcome boost to demand and especially so in the rate-sensitive segments like real estate and automobiles.
Forward-Looking View: Part of the case for cutting rates is that monetary policy is forward looking, so even if growth in Q2 is robust, cutting now can take out an insurance policy against a potential slowdown later on in the year.
The Case for a Pause (the Status Quo)
But a big mandate that analysts and institutions, even SBI Research are giving for the coming meet on Thursday by way of numbers is that MPC will indeed remain steady with Repo Rate at 5.50%. Their wariness is rooted in a couple of factors:
Cushioned GDP: The upside surprise in Q2 FY26’s 8.2% GDP growth indicates that the economy is doing okay without any additional, immediate monetary push. The MPC might prefer to hold off and observe whether this growth momentum is maintained in the third and fourth quarters.
Global Related Risk: Indian Rupee (INR) has been trading near its all time low at approx ₹90 per US Dollar (USD). The FPIs are bound to misdoubt over the future direction of the exchange rate if there is a policy support behind keeping it slightly more advantageous and then they will dump indian bonds.Adjustment could be better done by allowing Rupee to adjust, that would allow import prices to rise; rather than falling rupee we should allow some inflation on imports.
Forward Inflation Risks: Current price pressures are weak, but the RBI is concerned by increasing signs of future inflation, particularly as their own forecast has inflation returning to 4.0% by Q4 FY26 and 4.5% in Q1 FY27.
More Than Just The Repo Rate: Liquidity And Growth Projections
While the Repo Rate decision dominates headlines, the policy statement is a state-of-affairs presentation dotted with other important decisions and guidance.
Liquidity Management: RBI is likely to also provide assurance of sufficient liquidity in the market for credit expansion. With the country’s central bank likely to need to move in and support the Rupee by intervening in the foreign-exchange market, supporting liquidity without sending the onshore money rates surging is also going to be a fine line.
Growth and Inflation Outlook: With latest data now in, MPC would not only likely revise up its growth forecasts from FY26 projection of 6.8% but also confirm accelerating inflation trajectory than it projected last time. And it could reduce its full-year CPI inflation outlook from the current 2.6%.
Policy stance: We expect MPC to retain its ‘Neutral’ policy stance. This posture is a reminder that the central bank is flexible, and it has space without its borrowing costs up or down based on how inflation and growth dynamics play out in the months ahead.
All the Borrowers, Investors and Business owners would be looking forward to an eagerly awaited announcement at 10 am IST for its headline number that determines cost of money (and the direction of Indian Economy).
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